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PUBLIC BANKING:TIME TO CREATE AN “ECONOMIC MIRACLE” IN THE U.S.Ellen Brown Democracy ConventionMadison, WIAugust 7-11, 2013
North Dakota is the only state to own its own depository bank. • It is also the only state to escape the credit crisis. • It has the lowest unemployment rate, foreclosure rate, and default rate in the country. • But it’s only one bank . . .
These are largely in the BRIC countries, which all escaped the credit crisis.
The largest banks globally are state-owned, including -- • The two largest banks by market capitalization (ICBC and China Construction Bank) • The largest bank by deposits (Japan Post Bank) • The largest bank by number of branches (State Bank of India) • The largest bank by assets (Royal Bank of Scotland, nationalized in 2008) • The largest development bank (China Development Bank). • The world’s seven safest banks are also publicly-owned, leading with KfW, Germany’s public development bank.
“Economic miracles” occur in countries with strong public banking sectors. • China • Korea, Taiwan, Singapore, Hong Kong • Post-war Germany and Japan • Brazil, Argentina
Korea: “Korea’s progress is as if Haiti had turned into Switzerland.” -- Ha JoonChang • Per capita income increased 14-fold in 40 years, something Britain took 2 centuries and the U.S. took 1-1/2 centuries to do. • How? “The government owned all the banks, so it could direct the life blood of business – credit.”
What does a strong public banking sector have to do with it? 1. No parasitic financial sector draining off 40% of national profits.
3. Cut out interest: government owns the bank, so save 35-40% on the cost of public projects. Drinking Water Cost of interest on capital 38% Garbage Collection Fees Cost of interest on capital 12% Rent in Public Housing Cost of interest on capital 77% From Margrit Kennedy, http://www.monneta.org/upload/pdf/Pres_MK_CompC.pdf
The U.S. public banking movement20 states have introduced bills for publicly-owned banks.
None has passed, but a stronger case than ever can be made. What are the objections? • Government needs its revenues and can’t afford to lend them. • Government revenues will be at risk. • Bureaucrats make bad businessmen. Leave banking to the pros.
1. “We don’t have the money to lend”: Banks don’t lend their own money OR their depositors’ money. “[W]hen a bank makes a loan, it simply adds to the borrower’s deposit account in the bank by the amount of the loan. The money is not taken from anyone else’s deposit; it was not previously paid in to the bank by anyone. It’s new money, created by the bank for the use of the borrower.” -- U.S. Treasury Secretary Robert B. Anderson, 1959
Dodd-Frank: Congress and the taxpayers have said “no more.” Where will the money come from next time?
The template was issued by the G20 Financial Stability Board in Basel in 2011.
Can they do that? Yes. • Once your money is deposited, they own it. • You own an IOU.
Won’t the FDIC protect us? Not likely. The FDIC fund contains only $25 billion.
The problem: the 2005 Bankruptcy Reform Act gave derivative claims “super-priority” in bankruptcy. • They take even before deposits -- private (insured) AND public (secured).
We need only look at China • About 50 percent of production is still accomplished by state-owned enterprises (SOEs). Foreign ownership is limited to 25 percent of shares. • Nearly three‐quarters of Chinese bank assets are controlled by banks in which the state is the largest or only shareholder.
It’s not just China. In recent studies, “alternative banks” have actually outperformed their for-profit rivals. “Alternative banks”—public savings banks, cooperative banks, and public development banks—”not only fared better than their joint-stock counterparts during the crisis and its aftermath; they have been constantly over-performing them for some time—whether we compare cost efficiency, riskiness or even, in some respect, profitability—aparadox as [they] are in principle not profit-maximizing entities.” • Professor Kurt von Mettenheim and Olivier Butzbach, “Alternative Banking: Competitive Advantage and Social Inclusion,” June 2011
The BND: profitable, safe, sustainable • Pays a dividend of $30M/year (pop. 672,000). • ROE 2008 of 17-26%. • Competitive interest on state deposits. • Mandate to serve the public interest. • Partners with local banks to increase local lending. • Cheap credit lines to government. • Low-interest loans for local projects. • Underwrites municipal bonds. • Reduced banking costs. • Disaster relief – e.g. Grand Forks flood 1997.
For more information – PublicBankingInstitute.orgWebofDebt.com